For some of you, in your present financial status, debt consolidation might serve to be right choice. Debt consolidation basically allows you integrate all your existing debts into a single loan with low rate of interest, so that you will be able to afford your monthly loans with bad credit payments. In most cases, this new loan will often carry more favorable terms and would offer more benefits to the borrower than the old debts. Debt consolidation loans are of several different types – both secured debt consolidation and unsecured debt consolidation.
Most borrowers tend to seek the help of debt service companies when they decide to consolidate their debts. But, before you do so, it is important to note that these companies usually charge fees and other additional charges to offer you their services. It is not a big deal to become knowledgeable about the different types of debt consolidation options available in the market, after which you can apply for one on your own rather than paying huge sums to such services. This article will help you understand the different types of debt consolidation loans.
Secured and Unsecured Debt Consolidation
A secured debt, as most of you would be aware, is a one that is usually secured by, or connected to, one of your properties or assets as collateral. This pledging of your asset is to make sure that you pay back the loan amount you borrowed, on time, the failure of which will provide the authority to the lender to sell your property in order to obtain the amount of loan you failed to pay back. As you pledge a property, secured loans usually carry lower interest rates.
An unsecured debt is one that is not secured by a property as collateral. As the risks encountered by the lender in this installment loans for bad credit type is much higher, you will usually be charged an extremely high rate of interest on your loan amount.
Balance Transfer Offers
One choice you would receive for debt consolidation is to benefit from the offers of credit card balance transfers. Most credit card companies, due to their increasing numbers, try to attract new customers by providing different offers on balance transfers, such as offering low or zero percent interests. This offer will enable you to transfer the balance from your credit card that has high interest rates onto one such low interest card.
However, this debt consolidation option can be advantageous to you only in the short run. This is because, the low interest rates will usually be offered only for a specific time period, after which the interest rates would change back to normal high rates.
If you happen to possess multiple debts in hand, but you have not missed even a single loan payment, then you would probably possess a good credit status. This will make you eligible for a personal loan from a credit union or a bank, in addition to the several online lenders you can apply to. When you apply for such a loan, make sure that the interest rate is lesser than you current one and also the terms associated with the loan are favorable to you.